CH 4 Supervision of research Flashcards
True or False: The name and certifications of the analyst preparing a research report is not required to be disclosed.
False. These details must be disclosed.
A BD is ready to issue a favorable research report. Information barriers must exist between what two departments?
Trading and research
True or False: If an analyst issues a buy recommendation on a stock, his spouse may short the subject company’s stock.
False. The analyst and his household members may not trade against his recommendation.
When must a research report be approved?
Prior to first use by a Supervisory Analyst
May a firm with knowledge of a research report’s contents execute proprietary orders?
No. Executing proprietary orders is prohibited until the information is made public.
How long must a syndicate member wait before publishing research on the issuer’s IPO?
10 calendar days
True or False: A firm preparing research need not disclose underwriting compensation it receives in the future.
False. The firm preparing research must disclose underwriting compensation it receives within the next three months.
What does Regulation AC require of research analysts?
Analysts must certify the truthfulness of their views expressed in research reports and public appearances.
How long must an underwriting manager wait before publishing research on the issuer’s IPO?
10 calendar days
True or False: Analysts must disclose when serving as officer, director, or advisory board member of a subject company.
True. The same disclosure is required for a member of the analyst’s household.
An underwriting manager must wait ____ calendar days before publishing research on the issuer’s IPO.
An underwriting manager must wait 10 calendar days before publishing research on the issuer’s IPO.
If an analyst’s spouse owns options on a stock covered by the analyst, is disclosure required?
Yes. Disclosure is required if the analyst (or member of his household) has a financial interest in a subject company.
True or False: Plain and consistent meanings of ratings must be used in research reports.
TRUE
The _______ and ___________ of an underwriting may not immediately issue research reports on investment banking clients.
The manager and comanager of an underwriting may not immediately issue research reports on investment banking clients.
Communication between a research department and investment banking department must be routed through ______________.
Communication between a research department and investment banking department must be routed through Legal/ Compliance.
What is the purpose of an information barrier between trading and research departments?
To prevent the trading department from learning of an impending report about a stock in which the firm has a position.
An analyst covering the oil industry is not permitted to receive pre-IPO shares in a company in the ______________.
An analyst covering the oil industry is not permitted to receive pre-IPO shares in a company in the same sector.
As it relates to investment banking activities, communication between research and investment banking is ____________.
As it relates to investment banking activities, communication between research and investment banking is prohibited.
What must be implemented to limit the flow of communication between research and investment banking departments?
Information barriers
A member firm’s research reports should be written in a ______________ format.
A member firm’s research reports should be written in a plain English format.
What are the approval rules regarding research reports published by a member firm?
The reports must be approved prior to use by a Supervisory Analyst (Series 16) of the member firm.
As it relates to research reports, define subject company.
The company on which a research report is created.
If an analyst’s firm just published research on a company, how long must he wait before trading the stock?
Although there is no restriction, a research analyst must follow his firm’s procedures.
What does it mean for an analyst (or household members) to have a financial interest in a subject company?
The analyst (or household members) own shares, warrants, or options of the company being followed.
In what format should a firm’s research reports be written?
Plain English
True or False: A BD with knowledge of a research report’s contents may adjust its inventory if the report is negative.
False. Inventory adjustments are prohibited regardless of whether the report is positive or negative.
An underwriting manager must wait _____ calendar days before publishing research on the issuer’s secondary offering.
An underwriting manager must wait three calendar days before publishing research on the issuer’s secondary offering.
When is an analyst considered to be making a public appearance?
When making a recommendation for an equity security in a public or electronic forum, or on radio or TV.
True or False: A research analyst may attend a road show if accompanied by a member of the Compliance Department.
False. A research analyst is prohibited from attending a road show.
What is a firm prohibited from doing if it has material, nonpublic knowledge of a research report’s contents?
It may not establish, increase, decrease, or liquidate an inventory position in a security or its derivative.
Why are control rules established relating to interaction between research and investment banking departments?
To ensure that investment banking does not influence its research department’s recommendations.
The manager or co-manager of an IPO must satisfy a quiet period of _____ calendar days prior to publishing research.
The manager or co-manager of an IPO must satisfy a quiet period of 10 calendar days prior to publishing research.
If a firm owns ___% or more of a subject company, a disclosure must be made in a research report.
If a firm owns 1% or more of a subject company, a disclosure must be made in a research report.
What does AC stand for in Regulation AC?
Analyst Certification
A gathering of fewer than ____ separate investors is not considered a public appearance.
A gathering of fewer than 15 separate investors is not considered a public appearance.
If firm is acting as a dealer (not a manager or co-manager) on an IPO, what’s the quiet period on research?
Dealers cannot publish research until 10 calendar days after an IPO.
True or False: Firms writing research reports must disclose potential conflicts of interest.
True (e.g., firm makes a market in the stock or has had or will have an investment banking relationship with the issuer)
May an RR in the research area be supervised by the investment banking department?
No
May firms allow for the free flow of information between their research department and investment banking department?
No, these two departments must be separated to avoid conflicts of interest.
What exception allows an underwriting manager to immediately publish research on a company due to a significant event?
The Hot News exception
True or False: If a BD is involved in an offering it may not publish research during the offering process.
False, Rules 138 and 139 allow BDs to publish research if involved in an underwriting in limited situations.
Can an analyst that works at the lead underwriter for an IPO, release a research report one month after the IPO date?
Yes. Research analysts are only restricted from releasing research for 10 days after an IPO.
Define research reports.
Written or electronic communication about equities, including information for a client to make an investment decision.
In a public appearance, what is offered by an analyst?
Recommendations and opinions concerning equity securities.
According to industry rules, what is a research analyst prohibited from attending?
A road show in connection with an investment banking transaction.
A trader who is aware of a research report’s contents may execute ____________ client orders.
A trader who is aware of a research report’s contents may execute unsolicited client orders.
A syndicate member must wait ____ calendar days before publishing research on the issuer’s IPO.
A syndicate member must wait 10 calendar days before publishing research on the issuer’s IPO.
A BD is ready to issue a favorable research report. What must exist for the BD to continue regular trading operations?
Effective information barriers must be in place.
What must be stated in an analyst’s certification?
The research accurately reflects the analyst’s views and states whether compensation is tied to the views expressed.
If a member firm makes a recommendation to a client, what types of conflicts must be disclosed?
Whether the member firm owns the security, makes a market in the security, or acted as an underwriter for that company.
Who must approve a research report?
Supervisory analyst
True or False: Three-way communication between research, investment banking, and a client is allowed.
False. Three-way communication would be prohibited since legal/compliance is not involved.
When would a gathering of investors be considered a public appearance?
When there are 15 or more separate investors in attendance.
True or False: If a BD is not involved in an underwriting, it may publish research during the cooling-off period.
True, Rule 137 allows BDs to publish research if not involved in the underwriting.
True or False: A research analyst may compensate a newspaper writer for placing his recommendations in his column.
False. This type of compensation is strictly prohibited by the regulators.
A firm preparing research must disclose whether it received underwriting compensation within the last ____ months.
A firm preparing research must disclose whether it received underwriting compensation within the last 12 months.
